India’s Leadership Challenge

At many Indian companies, the development of top management has lagged behind the pursuit of technical excellence.

A significant number of Indian companies have experienced impressive growth during the past two decades. But today, many face a daunting side effect: a nationwide crisis in leadership. In some ways, Indian companies are victims of their own success. As one senior HR manager at a large private-sector conglomerate explained, “People have been so focused on growth that they have not invested in developing [the next generation of executives]. There is a strong circle of top leadership in our businesses, but no tag team.”

Recent survey data supports this claim. In a 2010 study by Harvard Business Publishing, an overwhelming 88 percent of top Indian companies cited “gaps in [their] leadership practice” as their top challenge in coming years. The 2012 ManpowerGroup Talent Shortage Survey, a global survey of employers, reported that 48 percent of respondents based in India had difficulty finding qualified candidates for their senior managerial positions. And Booz & Company (the publisher of strategy+business) forecast in a recent in-depth analysis of India’s top 500 companies that by 2017, 15 to 18 percent of leadership positions in those companies will be unfilled—or will be filled by people underprepared for the jobs. This implies that companies will be missing almost one of every five leaders they need, putting both potential growth opportunities and the continuity of existing business operations at risk (see Exhibit).

Several underlying causes have contributed to this breakdown in India’s corporate leadership pipeline. Considered together, they explain how Indian companies have arrived at their current precarious position. Understanding these factors can reveal the opportunities that today’s senior executives can use to set things right. It can also provide helpful insight to executives in other emerging economies, many of whose companies are also suffering from a senior executive talent shortage.

Shifting Realities

About 65 percent of India’s 1.2 billion people are between 15 and 64 years old, and 30 percent of the population is made up of those younger than 15. This widely recognized “demographic dividend” should have given Indian companies a significant advantage in the form of a sizable pool of qualified applicants. But the country’s youth-dominated population has thus far fallen short of its promise. Nandan Nilekani points out in his book Imagining India: The Idea of a Renewed Nation (Penguin, 2009) that India lacks the educational institutions it needs, from the earliest years to the post-college level. Thus, even though thousands of Indian university graduates enter the workforce every year, they are often not “industry ready” or equipped in the skills of global business. This has contributed to a dearth of topnotch candidates and a growing talent war for those few with desirable skill sets.

Young talent needs development and supervision. And as Indian companies have expanded their reach both domestically and abroad, the lack of managers capable of providing this guidance has become more acutely felt. The founding executives who built these thriving businesses, and who made the far-reaching strategic decisions in the past, are now approaching retirement. According to the chief executive of a large private-sector financial-services company in India, the country’s economy is growing at a faster pace than the rate at which the leadership pipeline is maturing. A decade of rapid expansion and exponential growth has left companies in deep need of talent that is in short supply.

This dynamic is all the more daunting because operating models at many Indian companies have shifted. Traditionally, Indian companies operated in a markedly top-down manner—the person with the corner office made the final decisions, and senior managers oversaw their specific silos. That top-down model was efficient, but it stifled creativity and discouraged autonomous decision making. Now it is giving way to a more participative approach, more resonant with the younger generation and more effective for companies that are too big to micromanage. But this new operating model can be effective only if skilled managers are available to fill the ranks.

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